By Manoj Kumar and Jatindra Dash and Sumit Khanna

BHUBANESWAR, India (Reuters) – The world’s major accounting firms are stepping up investments in new Indian facilities away from bigger cities as global demand for cheaper back office operations grows and smaller towns move up the economic value chain.

For decades, large multinational corporations have rushed to India’s biggest metropolises, chiefly Mumbai, Delhi and Bengaluru, to set up massive operational centres that employ millions, lured by vast, low-cost talent pools, particularly in IT.

Business service exports have become a critical part of India’s economy but the sector has been hit by a slowdown in global demand for software and challenges in big urban centres such as rising costs, high attrition and slow progress in getting workers to return to the office after the pandemic.

A report by Ernst & Young in June said it expects multinationals to set up “global capability centres” for all types of industries in tier-2 cities such as Jaipur, Vadodara, Kochi, and Chandigarh. The number of such centres could expand to 2,400 by 2030 from 1,600, adding 2.6 million jobs and over $100 billion to the economy.

That means more professional opportunities and potentially higher salaries in areas away from more globally connected business centres.

Diksha Mehta, 27, a mathematics graduate from the north Indian city of Patiala is among thousands of new hires, who recently joined Deloitte’s cyber security team – providing consultancy for an Australian bank and retail clients in Europe.

“I was preparing for a career in academics but was delighted when I got a job offer along with four classmates,” she said at Deloitte’s Gurugram office, on the outskirts of New Delhi, where hundreds have joined in recent months.

Rising wages, declining accounting graduates in developed countries after the pandemic and amid visa restrictions have helped India emerge as a powerhouse for global business services like taxation, data analytics, cybersecurity and customer management.

India is among the world’s top exporters of services, doubling its share in global services trade to over 4% from 2% in 2005, according to WTO estimates.

“Global giants are finding it easier and more competitive to shift work to small locations in India,” said Debasish Mishra, chief growth officer, Deloitte South Asia, noting the vast pool of English-speaking accounting, engineering and science graduates.

Deloitte, with a workforce of over 100,000 in India, says it will hire 50,000 more staff over three years, and expand its footprint in new towns while KPMG plans to hire over 20,000 over the next three years.

PwC hired close to 12,500 in the fiscal year ended March and expects to hire the same number this year, said Padmaja Alaganandan, the firm’s India chief people officer.

All of that could provide relief for the labour market amid slowing hiring in the manufacturing and IT sectors due to global growth concerns.

Prime Minister Narendra Modi has set a service exports target of $400 billion for the current fiscal year, about 25% more than the previous year.

Sunil Talati, president of government-aided Services Export Promotion Council, said total services exports could overtake goods exports in the next five years to $750 billion.

RISING WAGES

In Bhubaneswar, the capital of the eastern state of Odisha, Deloitte, PwC, and IBM have opened offices to serve Indian and global clients.

Swagatika Parmanik, 25, left her job as a software professional to join Deloitte as a consultant in Bhubaneswar, a city of about 1 million built around mining and farming.

The new position has given her a more than 50% pay hike and her flexible working arrangements that allow her stay at her parents’ home, 40km from the office.

“The salary hike helped me invest and buy medical insurance for my parents,” she said.

The new offices have also encouraged educational institutions to start new courses and property developers to launch building projects.

A report by Knight Frank consultancy last week said demand for office space has risen sharply in smaller cities, driven by expanding operations of global accounting and multinationals, pushing up rents by up to 10%.

Domestic accounting firms are also moving to smaller towns and raising wages.

The Services Export Promotion Council’s Talati, whose audit firm employed around 400 auditors and consultants in Gujarat, said many firms faced a shortage of certified accounting professionals.

“Retaining good employees is not an easy task as big companies are doubling the salaries,” said Kshitij Patel of Manubhai & Shah LLP, an Ahmedabad-based accounting firm, working for local and overseas clients.

“With the Big Four and other global firms coming to our cities, we are going even deeper to open offices in smaller cities.”

(Reporting by Manoj Kumar; Graphics by Kripa Jayaram; Editing by Sam Holmes)

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